Beyond Price: Reaching, Engaging and Retaining Insurance Customers

Even in auto insurance, the impact of price-driven insurance buyers can be overestimated, according to a McKinsey survey. Ovum emphasizes the important of knowing the customer and crafting a satisfactory experience.

Some insurers have had great success marketing on price alone, especially in auto insurance, but the practice is arguably a counterproductive one. Focusing on price rather than value tends to lead to unsatisfactory experiences — airline customers complain about how unpleasant flying is today, and yet they tend to seek the lowest fare. Similarly, insurance customers who gravitate to the lowest premium later complain about inadequate coverage dodgy claim service. The good news is that there are significant numbers of insurance customers who can be reached by emphasizing factors other than price, and who increasingly consider the quality of their experience as a factor in retention.

McKinsey’s Jan. 2013 report, “Beyond Price: The Rise of Customer-Centric Marketing in Insurance” notes the baleful trend, begun in the early 2000s, “when GEICO and Progressive upended the traditional view of insurance shopping segments by focusing on price and convenience alone.” Since then, according to the report, “most marketing messaging has focused relentlessly on price.”

This trend has encouraged auto insurance customers to shop around and frequently change insurers, according to McKinsey. However, insurers may underestimate the proportion of customers who act that way. McKinsey’s research shows that more than half of quotes come from price-sensitive customers, but they account of less than 30 percent of policyholders. McKinsey observes:

If the other 70 percent – the “silent majority” of policyholders – appears to be difficult to reach, this is likely because they are unresponsive to marketing messages based solely around price. McKinsey’s Auto Buyer Survey results reveal that this 70 percent is composed of many distinct segments, each with differentiated needs, behaviors and preferences. Some carriers have been successful with one or two segments (e.g., GEICO with customers who value “ease of shopping” or State Farm with those who prioritize “protection”); others paint their customers with a broad brush, and miss the opportunity to sharpen their value proposition for specific segments.

Insurers wishing to grow and retain customers need to develop a much more sophisticated view of insurance shoppers and study their particular demands by segment, McKinsey advises. The auto buyers report says that insurers also need to dedicate resources to the “sometimes overlooked challenge of retaining their valued policyholders.” Since auto insurers are among the most price-sensitive owing to the GEICO/Progressive paradigm shift, McKinsey's observations about the value of marketing beyond price are likely to be even more relevant to other personal lines of individual insurance customers in terms of how they shop, and how insurers should act to retain them.

One of the most important factors in retention is the quality of customer experience, insists Barry Rabkin, principal analyst with Ovum (London). “Without a thorough knowledge of their customers, insurers are heading towards a competitive myopia. Customer experiences are becoming the basis of competition in the insurance industry and companies need to encompass customer needs, expectations, and satisfaction into their customer experience management strategy,” Rabkin says.

In a statement released yesterday, Ovum describes an emerging customer ethos conditioned by the online, anywhere/anytime mobile world:

The forces of technology are creating an environment of “more” – more information, more smart devices, more functional apps, more interconnected people to seek advice from or share opinions with – and making all of it available at a customer’s fingertips. The forces of “more” are delivering a personalised, real-time experience to each person. One of the biggest challenges facing insurance companies is figuring out who the customer is, and how to find competitive success in an environment where each customer expects to be treated as an individual.

“In this age of “more”, customers are increasingly expecting to receive a quality experience from their interactions with insurers. Insurers must quickly weave in the importance of customer experience into the company strategy at each touch point in order to succeed or fail to meet their expectations,” Rabkin concludes.

Anthony O'Donnell has covered technology in the insurance industry since 2000, when he joined the editorial staff of Insurance & Technology. As an editor and reporter for I&T and the InformationWeek Financial Services of TechWeb he has written on all areas of information ... View Full Bio

I read an article yesterday from some academics with the Wharton School talking about kind of the flip side of this -- arguing one of the problems the insurance industry has is doing a poor/nonexistent job of explaining why premium rate hikes are necessary following a catastrophe, etc.Either way, it's about educating the public about the realities of a complex industry.